It is quite possible the Covid-19 pandemic that has enveloped the world could turn out to be a wakeup call for a lot of organizations regarding their supply chains. The pandemic has exposed the vulnerabilities in the global supply chains and there is an immediate need to rethink and transform the existing models so that we don’t face the same supply crisis that we faced after the outbreak of Covid-19. Organizations – big and small – from different countries of the world have been too heavily dependent on China for raw materials and finished products, and this lack of diversification resulted in a lot of trouble after the lockdowns were imposed throughout the world.
Since China is the major exporter of goods and unofficially the world’s factory, any crisis that affects China directly affects the entire world. One of the most alarming statistics is that 200 out of the Fortune 500 global companies have their presence in the Wuhan district in China, which happens to be a highly industrial area. Unfortunately, it is also the epicenter of this deadly pandemic. The companies that are reliant on Tier 1 and Tier 2 suppliers in China have been very adversely affected as the production has gone down and supply chains have been broken. According to research data by Dunn and Bradstreet, globally, 51,000 companies have either one or more Tier 1 supplier from Wuhan, and an additional five million companies have Tier 2 suppliers there. And now, due to travel restrictions, lockdowns and social distancing measures, so many companies have had the land swept from under their feet.
The impact of supply chain breakdown has been twofold. Firstly, the business owners have to devise strategies by monitoring short-term and long term demand to compensate for the loss in production due to the broken supply chains. At the same time, however, the consumers have begun panic buying products to stock up for any unprecedented future lockdowns, which is leading to the depletion of inventories.
Even though the situation is quite dire and fates of thousands of organizations hang in the balance, there are some things that business owners can do to mitigate the disaster. For ease of understanding, let’s divide our solutions into three categories:
1. For companies that operate from or have a business relationship with China or other impacted countries.
2. For companies that source goods from China and other impacted countries.
3. For companies that have a market in China and other impacted countries for their goods.
For Companies That Operate From Or Have A Business Relationship With China Or Other Impacted Countries.
• Conduct online workshops to educate the workers regarding Covid-19 (including symptoms and preventive measures), so that they may be able to work safely.
• Make arrangements on the factory premises to screen the employees regularly.
• Plan work in staggered shifts to reduce the number of workers present on the factory premises at a single time.
• Put all non-essential travel on hold and create a flexible working environment.
• Pay close attention to the company’s liquidity and devise plans to cut down on all unnecessary expenditures.
For Companies That Source Goods From China And Other Impacted Countries.
• Focus on labor planning to ensure you are not out of human resources suddenly.
• Focus on Tier 1 supplier risk.
• Study your supplier network intricately and highlight areas that might become a source of trouble in the future.
• Diversify your supply chain and reach out to other suppliers in less affected countries.
• Work towards making the supply chain more transparent and easily traceable. This will give you time to prepare for an oncoming crisis and you wouldn’t be blindsided.
For Companies That Have A Market In China And Other Impacted Countries For Their Goods.
Since global trade has become so easy, companies have been optimizing the supply chains so that they can reduce the size of their inventories and utilize the assets to the maximum
Ajay Kapur, Founder & Managing Director, Shubham Chemicals and Solvents Limited
• Conduct a study to understand how the demand for your product would be impacted because of the pandemic. Depending on what you’re offering, the demand for your product could increase or decrease. For instance, while the demand for luxury items has plummeted during the lockdown phase, the demand for Fast Moving Consumer Goods has grown manifolds.
• Scout alternate channels for selling your product. This pandemic has seen rapid adoption of e-commerce services as people want to avoid physical contact at the offline stores. An omnichannel approach is the need of the hour and since more and more people are gravitating towards e-commerce, there is no reason for you to not venture into that highly fertile area.
• Interact with your customers and reassure them that the goods you are delivering and the methods you are using to deliver and manufacture them are completely safe. People have become highly paranoid and the slightest bit of doubt could steer them away from you. Therefore, interacting with customers could be a savior for your business.
• Conduct global scenario planning.
The Future Of Supply Chains
Since global trade has become so easy, companies have been optimizing the supply chains so that they can reduce the size of their inventories and utilize the assets to the maximum. This has resulted in the disappearance of buffers and thus, many companies have lost their ability to deal with supply chain disruptions, and Covid-19 has exposed that vulnerability.
Thankfully, we are seeing the emergence of new supply chain technologies – like the blockchain – which offer greater transparency and can warn the companies in advance if a crisis is on the horizon so that they can make adequate arrangements. Not only is this technology a boon for crisis management, but it is can also help monitor the quality of material that is being provided by the supplier. In the initial days of the lockdown, China was called out for providing substandard PPE kits and other essential supplies. This problem would be completely removed with blockchain as the concerned person would be able to see the product at every stage and identify any fraudulent activities.
There are plenty of technologies on the horizon like AI (Artificial Intelligence), ML (Machine Learning), IoT (Internet of Things) that are further going to augment that DSNs (Digital Supply Chains). Hopefully, we’ll learn from our mistakes and create a more robust and diversified supply chain network that would be more resilient to future calamities.